Steel producer ArcelorMittal South Africa (AMSA) has confirmed that the reline project at its Newcastle mill, in KwaZulu-Natal, has hit snags and that the project, which was initially expected to be completed four months after the May 12 shutdown began, will be delayed until mid-October.

The delay will also add $20-million to the overall project costs, which have climbed from $80-million to $100-million. These costs include the need to import additional billets to ensure that the domestic market remains supplied for the duration of the shutdown.

Newly appointed CEO Paul O’Flaherty describes the delay as disappointing, particularly in light of the fact that Newcastle is regarded internally as the group’s “cash cow” and says it will be crucial to ensure that the post project ramp-up is well implemented. It is anticipated that it will take about two weeks to ramp the plant up to full production once the project has been completed.

However, the former Eskom finance director stresses that actions have been taken to limit the duration of the delay, which relate primarily to the underperformance of a subcontractor whose work package was on the project’s “critical path”.

Chief operating officer Dr Hans Ludwig Rosenstock reports that AMSA has increased its site supervision and has also reduced the scope of work to be delivered by the underperforming contracting company, which was not identified.

As anticipated, the reline also had a material negative impact on the group’s financial performance and CFO Matthais Wellhausen warns that it will remain a drag on performance for the third quarter and parts of the final quarter.

The JSE-listed company recorded a headline loss of R6-million for the six months ended June 30, compared with a loss of R123-million in the corresponding period last year. But on a quarter-by-quarter basis, revenue fell 4% to R8.8-billion and operating profit declined by R631-million to a loss of R236-million.

The group has also descended into a net debt position of R594-million fand Wellhausen only expects the cash position to turn positive again in early 2015. He also stresses that the return of the Newcastle mill should go a long way to improving the financial performance of the company in 2015.